Improving the Economics of Organic

by Derek Singleton

I’m a huge proponent of organic farming, grocers and food. As someone who got their bachelors in Urban & Environmental Policy, I have pretty strong knowledge of the impacts that agribusiness has had on our environment, food system and health. And yet I rarely leave a grocery store with nothing but organic food. Why not? The answer is simple: I can’t afford it, and I often have trouble finding an organic alternative to conventionally produced at mainstream grocers.

Unfortunately, organic farms aren’t operating at the economies of scale that they need to be to make organic food affordable to most Americans. This is also why organic food is failing to act as a viable alternative to conventionally produced food. For the most part, organic food still has to be bought from mom-and-pop type retailers and we’re forced to pay a premium for them.

When you consider that roughly 15% of Americans make their food purchasing decisions on the basis of cost alone, it becomes clear that many Americans aren’t even considering the healthier alternative. The result is a gap in food access where the more affluent are able to afford the premium attached to organic food and some are left without access to even conventional produced food.

Of course this is starting to change, but it’s not enough to make a huge impact. The industry is growing and starting to reach scale – revenue in the industry grew by 25 times from 1990 to 2009. But this is all relative growth. Conventional produced food still owns the lion’s share of the remaining $1 trillion that US consumers spend on food each year.

So, what can be done while the organic food industry tries to scale up production? I see three main things that can be done to improve the way organic food is bought, sold and distributed. Adopting some technological and strategic improvements to the food supply chain will result in more efficient food delivery, greater access and cheaper organic food.

Improve Distribution Operations – One of the biggest things holding back distributors of organic food is that they don’t deliver their food in the most efficient way possible. An intelligent use of food distributor software would help distributors choose the most efficient path to distribute which would help reduce the overhead associated with delivering organic food.

Create Better Buyer-Supplier Communication – Another thing keeping the price of organic food high is a lack of buyer-supplier communication. This can be remedied by utilizing supply chain technologies, which can provide updates on the available inventory of organic distributors in real-time. At the same time, the system can immediately inform distributors when a grocer is at low stock levels.

Coordinate Purchasing – The organic grocery market, save companies like Whole Foods, is still mostly a mom-and-pop type retail operation. These buyers don’t get very good wholesale cost savings because they’re not buying in a large enough quantity. If some of these stores banded together and aggregated their purchasing, they could lower their operational costs by an order of magnitude. This would decrease operational costs and the cost to the consumer.

These are just a few of my ideas but I’m eager to hear what others in the community think. You can check out the rest of my article at: Creating A Healthier Organic Food Distribution Network. Feel free to reach out to me at derek@softwareadvice.com or follow me on Twitter @ERPAdvice. 

Derek Singleton, ERP Analyst Software Advice
Contributed by Farm to Table
 

 

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